Getting to "yes" in a world of "no"…

Never mind what UK angels actually do look for, what kind of company would I put my own money into if I were a business angel? True, given that I’m not writing this from a Home Counties mini-mansion with a £250K mini-fund in the bank for speculating with, this is a somewhat idealistic exercise: but run with me, you’ll see where I’m going with it quickly enough…

As with anything like this, there are numerous things I’d specifically look for:-

Trend awareness: the older I get, the more it seems to me that businesses consciously aligned with underlying societal / global trends are the most substantial and tenacious. So I’d look for entrepreneurs that have not only a short-term tactic in mind that genuinely needs capital to exploit a market opportunity, but also a longer-term business fit that is aligned with larger-scale trends. Basically, a ‘project‘ / ‘hack‘ that clearly has the capacity to be nurtured and grown into a business.

MVR: a “Minimum Viable Raise”. Unless someone comes up with a better way of funding companies, opening and closing multiple small (£20K? £40K?) rounds will always be a waste of everyone’s time. Even £100K is questionably small from my viewpoint: so £200K and up is probably sensible as of right now.

Marketing: particularly if it was a tech startup proposal, I’d scrutinize the marketing side closely, because few tech guys I’ve met seem to fully grasp how commoditized most technology has become – and hence how crucial marketing (& particularly PR) has become. Basically, managing supply efficiently is useless without simultaneously stimulating and managing demand: “it’ll go viral“? I don’t think so, sorry.

Sector focus: I’d also prefer hardware startups, partly because I believe that hardware has become “the new software” (one of those mega-trends I mentioned above), but mainly because I think hardware (and specifically manufacturing) is so out of fashion that there’s enormous contrarian opportunity there.

Temperament: I’d also look for entrepreneurs who combine persistence and risk aversion with a talent for not spending money. While planning how to spend a pile of money is easy (business schools are a good preparation for fantasy football, though not so good for running real-world companies), creatively finding ways to avoid spending it (in order to keep your long runway in place) can be hard, and not everyone has the temperament to do this.

IP structure: the three most important things of all are arguably IP; IP; and, errrrm, IP. And this is not just because patents offer a quasi-monopolistic state licence (that VCs, in their own endearing way, sometimes call “choke points”). Rather, because VC funding is coming in ever later, I think that we will see startups sidestepping VC funding completely by consciously structuring IP ownership for securitizability – by which I mean placing intangible assets into an SPV, exposing the cash-flow from them to the accounts, and then setting up some kind of mezzanine-level borrowing against them. Hence I’m really not sure I’d be comfortable funding a startup that didn’t have a deliberate IP structure in mind right from Day One.

All very clear and rational: but what I don’t get is why the angels I’ve met don’t appear to think in anything like these terms. Only one has shown interest in marketing mechanics; trend awareness is held hostage to their cashflow concerns; while none genuinely has a hardware sector focus, not even those few angels who have made money out of manufacturing. What’s more, IP structure seems to be a total non-issue to them: all talk of SPVs / securitization / mezzanine funding comes across as ‘fantasy business’ Powerpointery to them, because they collectively seem to have lost belief that any growth curve beyond ‘miserably-bumping-along-the-bottom‘ is possible. Do I need to extend this miserable list any further? No, not really.

Ultimately, the point of this post is that between the mechanics of funding and the mechanics of actual business, I think a broad gap has opened up – one which moreover seems to be trending ever wider. I suspect he business world has changed too significantly since the days of the “soft money” bull markets where nearly all angels made their money for them to be truly comfortable: perhaps they are unable to see business circa 2010/2011 for what it really is.